The pound climbed against its major counterparts in the European session on Monday, as a data showed that the UK private sector contracted less than initially estimated in December.

Final data from IHS Markit showed that the composite output index held steady at 49.3 in December. The latest reading was the joint-lowest since July 2016. However, the score was above the flash 48.5.

The services Purchasing Managers' Index improved to the neutral 50.0 from 49.3 a month ago. The flash reading was 49.0. The stabilization of service sector output was helped by a return to improving order books.

Meanwhile, European shares extended losses amid brewing tensions in the Middle East.

U.S. President Donald Trump threatened to strike back if Tehran were to retaliate. Trump also threatened sanctions against Iraq after its parliament called on U.S. forces to leave the country, amid a growing backlash over the U.S. killing of a top Iranian military commander.

The currency showed mixed trading against its major counterparts in the Asian session. While it fell against the yen and the franc, it rose against the greenback. Versus the euro, it held steady.

The pound appreciated to a 4-day high of 1.3165 against the greenback, from a low of 1.3064 it touched at 6:00 pm ET. The next likely resistance for the pound is seen around the 1.35 level.

After falling to near a 6-week low of 140.82 against the yen in the previous session, the pound rebounded with the pair trading at 142.05. The pound is seen finding resistance around the 144.00 level.

The latest survey from Nikkei showed that Japan's manufacturing sector continued to contract in December, and at a faster rate, with a manufacturing PMI score of 48.4.

That's down from 48.9 in November and it moves further beneath the boom-or-bust line of 50 that separates expansion from contraction.

The pound rose as high as 1.2753 against the franc, reversing from a 2-week low of 1.2680 set at 5:15 pm ET. Further rally may take the pound to resistance around the 1.30 area.

Having dropped to a 6-day low of 0.8545 against the euro at 3:15 am ET, the pound changed its course, trading at 0.8500. Next key resistance for the pound is seen around the 0.84 level.

Final survey data from IHS Markit showed that the euro area private sector expanded at a faster-than-initially-estimated pace in December.

The composite output index rose to 50.9 in December from 50.6 in November. The flash reading was also 50.6.

Looking ahead, Canada industrial product price index for November and Markit's U.S. final services PMI for December are set for release in the New York session.

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